Make extra payments to attack car debt

Should I try to get a secured credit card to boost my credit before trying to refinance the car and the house, or should I take a shot at trying to refinance now? I make roughly $43,000 a year in my main job and I work part time in a second job. Please help me make the right decision.

-- Celena Credit

Dear Celena,
First things first: Get an updated credit score from at least one of the three main credit bureaus. You have to pay for it, but it'll be worth the $10 to $15 to see where you stand after a year of paying these two loans on time. Bankrate has the contact information for all three firms.

If you have a 30-year fixed rate mortgage at 7.25 percent, you may not be able to do all that much better on a refinancing, even with an improved credit score. As I write this, the Bankrate national average for a 30-year fixed rate loan is 6.29 percent, and that's for an A credit rating. You're not likely to have made it from an F to an A in just one short year. You'll need a credit score in the upper 600s (660 to 699) before you'll see much of an improvement on your existing mortgage rate. If you're to at least that point, then you can take a look at a mortgage refinancing calculator to see how long it will take you to recoup your closing costs on a mortgage refinancing.

I was taken aback when you told me your car loan is at 23 percent. You're far more likely to improve on this rate than you are on your mortgage, assuming that there's no prepayment penalty on the loan and that the loan doesn't use the "Rule of 78s" to calculate how interest is paid. The Bankrate feature, "Steer clear of the perilous 'Rule of 78s'," explains the rule in greater detail. Take a look at your loan agreement, too.

I don't think you need a secured credit card to boost your credit rating before attempting a refinance. A secured card doesn't do much for you, except for demonstrating a payment history, and you're already doing that with the car loan and the mortgage. I think you need to work on getting the car paid off -- again, assuming no prepayment penalty on that loan. Making additional principal payments on the car to reduce its loan balance is the first place to attack your bills.